Chapter 10 Flashcards
What is an externality?
An externality is the uncompensated impact of one person’s actions on the well-being of a bystander.
What is a negative externality?
A negative externality occurs when the impact on the bystander is adverse, meaning it has a harmful or negative effect.
What is a positive externality?
A positive externality occurs when the impact on the bystander is beneficial, meaning it has a positive or advantageous effect.
What is the private cost?
The private cost is the expense incurred by a producer or seller in the production or provision of a good or service.
What is an external cost?
An external cost, or cost to a bystander, is the uncompensated impact of one person’s actions on the well-being of someone who is not directly involved in the transaction.
What is the formula for social cost?
Social cost equals the sum of private cost and external cost.
What is private benefit (benefit to buyer)?
Refers to the advantages and gains experienced by an individual or entity when consuming or using a good or service.
What is an external benefit?
An external benefit, or benefit to a bystander, is the uncompensated positive impact of one person’s actions on the well-being of someone who is not directly involved in the transaction.
What is the formula for social benefit?
Social benefit is calculated as the sum of private benefit and the benefit to a bystander.
